Arrow Law Group

Wednesday, January 15, 2014

I've realized that before people come to see me, they have already consulted with numerous people "in the industry"--and most of the time, the information they receive is incomplete or flat out wrong. This is because the first person most people call is their real estate agents/brokers!

Real estate brokers, though very knowledgeable about real estate, cannot give a complete picture. They are not licensed or trained to give advice on mortgage default, and people should never rely on their advice on how to handle mortgage default--no matter how trustworthy that person is. They generally have your best interest in mind, but real estate agents are simply not familiar with all your available options. Real estate agents can only offer to sell your home. Before you consider this option, call a lawyer!

My advice to folks out there who are behind on their mortgage is to contact a debt relief lawyer. Most debt relief lawyers are also bankruptcy lawyers and most offer one free consultation. The sooner that you talk to a lawyer, the more options you will have. If you wait until the last minute, or weeks before the foreclosure auction, to see a lawyer, you will find that your options are unfortunately very limited.

In Washington, where I practice (Seattle), you have several options.

1

If you want to keep your home, you can request an attorney referral to the foreclosure mediation program. This program is governed by the Washington State Foreclosure Fairness Act (2011), RCW 61.24.163. Foreclosure mediation is administered by the Washington State Department of Commerce and has been, in my opinion, a huge success. At mediation, lenders are required to review loss mitigation options including loan modification, short sales, etc. Mediation also delays foreclosure until a decision has been made.

2

If mediation is not possible or practicable, you can file a Chapter 13 reorganization plan. This is a form of bankruptcy relief. The bankruptcy court can reorganize your debts, including your mortgage, so that you can reinstate your loan. If you have multiple liens on your home (e.g., second mortgage or HELOC), the bankruptcy court can remove them to reduce your monthly payments. Best of all, foreclosure can be stopped at any time before the foreclosure auction. This means that you can come to me on a Thursday to stop a foreclosure scheduled to take place the next morning. (As a matter of law, foreclosure in Washington can only occur at 10 a.m. on a Friday).

3

If you want to walk away from your home, or surrender it, you should consult an attorney right away. In Washington, if a lender conducts a non-judicial foreclosure on a home, the borrower is not liable for the deficiency. For example, if you owe $250,000 on your home, and it is auctioned off for $100,000, you are not liable for the $150,000 difference. This rule only applies to the lender that conducts the non-judicial foreclosure. The borrower is still liable to other lienholders (2nd mortgage, etc.) who did not participate in the foreclosure.

If you are not concerned about your credit, then sometimes letting a home going into foreclosure is the best.

I usually recommend exploring alternative options such as a short sale. A short sale is where the borrower and lender work together to sell the house at a fair price even if it less than what the borrower owes. The terms are negotiated between the borrower (usually though an attorney) and the lender. I find that lenders are eager to forgive deficiency if you work with them. The team at my office is stellar at negotiating favorable terms for our clients.

If you live in Washington, feel free to contact me directly for more information and legal advice. I have an office in Seattle and Everett, though I represent folks in Vancouver (WA), Tacoma, Federal Way, Renton, Seattle, Lynnwood, Everett, and Bremerton--you get the picture.

Sunday, July 28, 2013

Lately, there has been this craze that we are somehow over this foreclosure mess. Yes, I admit that we have had a few good months of real estate sale; real estate inventory is low compared to the number of buyers. This doe not mean that the foreclosure auction blocks are empty. Every Friday as I walk into my Everett office, I see a swarm of investors (or people who call themselves investors) standing in front of the Snohomish County Courthouse anxiously waiting to bid on a foreclosed property. It is sort of ironic because my office focuses on helping people avoid foreclosure (or get closure in the whole ordeal).

For most folks, being forced into foreclosure is a scary thing. Dealing with the uncertainty of what comes next coupled with the bank's constant reminder of the outstanding debt is not easy. Most homeowners should understand though, that help is out there.

For homeowners who are trying to save their home, I usually advise looking into applying for a loan modification. Under the Foreclosure Fairness Act (2011) that I wrote about in another post, I can require the lender to stop the foreclosure process and help the homeowner explore options. We go to mediation face-to-face with the lender's representative (or attorney) and we review documents together. We have had the lenders reduce principal balances, interest, extend loan terms, and offer other work-out solutions. Keep in mind that every situation is different and we can never guarantee results.

There are times where mediation is not ideal. For instance, to qualify for relief, the homeowner must demonstrate a "hardship". If the homeowner makes too much money (in the bank's eyes), this will automatically result in a denial of any relief. For those cases, then I usually advise filing for Chapter 13 protection in bankruptcy court. Why? The Bankruptcy Court can order the lender to stop foreclosing and listen to the homeowner. Often, it shifts the ball back into the homeowner's court. Unlike mediation or applying for a loan modification, the lender is not free to do whatever it wants once the borrower has filed for bankruptcy relief.

For homeowners who do not want to keep their home, there are a couple of options. Sometimes letting the lender foreclose is wise. Other times, it opens the door for the homeowner to become liable to a second or third mortgages. I usually advise either (1) attempt a short sale, (2) consider a Chapter 7 bankruptcy, or (3) let the property go into the auction block and deal issues as they become real. I always recommend my clients to speak to me before attempting a short sale; most folks rely on advice from their realtor when engaging in a short sale. Only an attorney can give competent legal advice. Many realtors legally cannot tell homeowners the difference between a short sale and a foreclosure--so how do people know which one is better for them?

If you are homeowner in Washington who is facing a foreclosure problem, please do not hesitate to give me call. Call me before you start a short sale (before you sign that contact to list your home).

Friday, June 14, 2013

Many folks have asked me why an attorney will make a difference when filing for bankruptcy. Honestly, it might not make a difference depending on your circumstance. I've seen lots of bankruptcy filed without attorneys and they turn out just fine. On the other hand, I've seen some poorly planned bankruptcy turn very ugly for the debtors--costing the debtors everything they own and more.

Based on my experience, a simple Chapter 7 bankruptcy can run between $900 to $1,500 for attorney's fee. While that may seem a lot to folks who are scrapping the bottom, I always counsel folks against doing it themselves. The reason is because you cannot "unfile" a bankruptcy; there is no right to dismiss a Chapter 7 petition.

What happens when a creditor challenges your bankruptcy? There is a process called an "Adversary Proceeding" that is filed in a bankruptcy to challenge a debtor's right to a discharge of debts. In a nutshell, it is a lawsuit filed in bankruptcy court. These adversary proceedings are brought by disgruntled creditors who will stop at nothing to make the debtor "pay". Litigating an adversary proceeding can be costly. In some case, a well-planned bankruptcy can reduce the risk of an adversary proceeding. Win or lose, it is not unheard of to see a $20,000 to $30,000 legal bill to defend a poorly filed bankruptcy. I, personally, have actually billed this much to represent a debtor in an adversary proceeding. Most folks who are served with an adversary proceeding cannot afford to defend themselves and fall victim to frivolous challenges by disgruntled creditors.

When considering whether to go with an attorney or not, consider how much you can potentially save by going with a good attorney.

Tuesday, August 7, 2012

HAMP

In 2008, the federal government rolled out a program called the "Home Affordable Modification Program" or "HAMP". The program pays lenders to work with homeowners. However, the compensation is not very much (especially when compared to the free bailout money). Many homeowners still do not understand how HAMP works and become agitated when the bank representatives themselves can't explain it. If you have been offered a HAMP modification, it is important to know how it works so you can decide what to do.

The modification application requires the lender to review financial documents from homeowners. These documents are then used to figure out what terms are possible under HAMP using a Net Present Value test, also known as the Waterfall.

The first thing the lender needs to do is figure out their investors' interest rate limits. Since most home loans in the U.S. belong to Freddie Mac or Fannie Mae, you can usually find the weekly interest rate "floor" and "ceiling" online. For purposes of this blog only, let's assume that the floor is 3.0% and the ceiling is 4.0%. This means that the lowest interest rate that one can expect from a HAMP loan mod is 3.0% and the highest is 4.0%, although ultimately, everyone will end up paying the 4.0% (explained below).

The lender then goes through a "waterfall" test based on government guidelines to calculate the optimal loan mod scenario. Since the lender is going to submit the application to the government for compensation, lenders have strict rules to follow. It is a mistake for borrowers to assume that HAMP loan mod terms are negotiable.

Let's go through a waterfall test in its simplest form.

HYPOTHETICAL FACTS

Assume that Alfred, a single man in Washington state, makes $3,500 per month. When he bought his home in 2008, it was worth nearly $365,000. Today, it is worth about $200,000 if he can sell it. The unpaid balance on his loan is $300,000; with an interest rate of 6.5% fixed for 30 years, Alfred's monthly payment is $1,896.20 not including property tax, insurance, and homeowner's association dues. He is currently 15 months behind on his payments and foreclosure is imminent. Assume also that Alfred can show hardship (that is, he didn't simply choose to work less hours and have medical problems). If Alfred is to apply for a HAMP loan modification, what results can he expect to see?

Original balance

Unpaid balance

Property value

Monthly income

Current interest

Current payment

Delinquent

$350,000

$300,000

$300,000

$3,500

6.5%

$1,896.20

15 months

Waterfall test #1: Reduce the monthly payment to 31% of borrower's income

$3,500 x 31% = $1,085/month.

If Alfred's payment is reduced to $1,085/month, his interest rate would be lowered to -0.60%. That interest rate are WAY below the floor rate (3.0%), the lender is required to move onto the next test.

Waterfall test #2: Extend the loan term to 40 years
$1,085 at 40 years yields an interest rate of 1.3%. This is still below the floor rate thus, the lender is required to move onto the next test.

Waterfall test #3: Apply principal forbearance
A principal forbearance means that some of the principal balance is not going to be charged interest. The lender starts with 4.0% (the ceiling rate) and start to decrease the interest in small intervals until it hits the floor. The idea to minimize the amount principal forbearance without cutting too much interest.

Here, Alfred would require a principal forbearance of $80,019.97. This means that the lender would waive the interest on this part of the loan. Usually, this means that Alfred will have a balloon payment of $80,019.97 at the end of his loan term. [Most people do not know about this].

Results:

New Loan
Term

Payment
for first 5 years

Interest
for first 5 years

Payment
after 5 years

Interest
after 5 years

Balloon payment
at end of loan

40 years

$920.33/mo

3.0%

$1,050.64/mo

4.0%

$80,019.97

Alfred's loan would be modified to 3.0% on $219,980.03; 0% on $80,019.97. The 3.0% will increase to 4.0% (ceiling rate) at month 60 (5 years) and then remain at 4.0% until the end of his loan term. That means that his loan payment will be temporarily reduced to $$920.33/month for the first 5 years; after that, it will be $1,050.64/month. At month 451, he will receive a bill for $80,019.97.

The net benefit of this modification to Alfred is a saving of $975.87/mo during the first 5 years and a saving of 845.56/mo after that.

Thus, no matter what interest rate the loan is temporarily reduced to, the end result is that everyone will pay the ceiling rate (at the time the loan mod applications was approved) after 5 years. Fortunately, the ceiling interest rate is low enough that most people won't complain.

If you are a Washington State resident who needs assistance reaching out to the bank, my office represents homeowners in foreclosure mediation, where we are able to apply for a loan modification directly with the lender. This reduces communication congestion and paperwork nightmare that most borrowers go through during the loan review process. Mediation also allows lenders to look at alternative loan modifications. Since only attorneys and HUD Counselors can refer homeowners to mediation, homeowners are advised to speak to one ASAP since timing is crucial to a successful mediation.

Tuesday, June 12, 2012

You're driving down I-5 on a sunny Monday morning. Traffic seems to be flowing smoothly at 60 mph. Suddenly, you notice the car in front of you stopped with its brake lights on. You try to change lanes, but there's no time---plus cars around you are going too fast. Being a defensive driver, you've left enough room to slow down and and eventually stop. Just as you release a sigh of relief, the driver behind you slams his car into yours, and your car is suddenly forced forward into the car in the front. You find yourself involved in a car accident. Although a little sore, everyone manages to get out of their cars to exchange information.

Washington StateAuto Accident Lawyers(800) 854-6967

Later, you find out that the reason why the car in front of you stopped was because she ran out of gas, and her vehicle stalled. The car behind you was going with the speed of traffic and was caught off-guard by your sudden stopped vehicle on the interstate.

Who is at fault? Even though everyone is clear on the question of fact, liability is a question of law. Surprisingly, we have handled multiple cases with facts similar to the ones above. Having multiple parties (and their insurance) all pointing fingers at each other makes it tough.

Since Washington is a comparative negligence state, the law apportions fault among all the parties. It's possible that the lady who failed to put enough gas in her car is only legally 65% at fault, and thus, can only be liable for 65% of the total damage to others. As lawyers, we put a lot of time in negotiating fault to obtain the highest award to our clients. If necessary, we will put a case before a court to decide.

We also find that those who try to handle their own personal injury claims without a lawyer will end up settling for less money than those who started the case with a lawyer. This is usually because auto accident victims are usually unaware of the value of their claim; and therefore, they are unprepared to fight for more.

If there are passengers in the car, please do not consider trying to settle the auto accident claims for others. Do get competent legal advice. And if you do decide to hire a professional to handle your injury claim, it's best to meet with one earlier in the case to obtain the best result.

Arrow Law Group is a Seattle based law firm. We handle personal injury and auto accident claims from all over the state.

Wednesday, May 9, 2012

Washington's Foreclosure Fairness Act is being amended and will take effect in June 2012. Among the changes include a new timeline and additional requirements for both the borrowers and lenders. The new rule will require a Notice of Defaultbefore mediation can be initiated. And it will allow extra time to request mediation. Currently, once the Notice of Trustee's Sale has been recorded, the borrower loses the right to mediation. That will change.

Some things will remain the same though. The statute still requires a HUD Counselor or Attorney to refer borrowers to mediation; borrowers cannot simply apply for, or refer themselves to, mediation. Given the lengthy statutory requirements that both sides have to comply with, most borrowers will not want to tackle this on their own. This is the borrowers one last chance to directly discuss workout options with their lender. Borrowers are expected to know what is required and to comply with the law.

Since the Foreclosure Fairness Act was enacted last year, our office has represented numerous clients in mediation and other debt relief proceedings. If you are facing foreclosure and you cannot get help from the lender, do not wait! We can only apply for relief under state law before a foreclosure is scheduled.

Sunday, August 21, 2011

I'm sure, by now, you all see news about foreclosure increase and home prices dropping on a daily basis. Washington State legislators responded to the foreclosure crisis by changing the way banks foreclose.

Washington State passed the Foreclosure Fairness Act, which went into effecton July 22, 2011. The new law will allow borrowers more time and a better chance at seeking a work-out solution with lenders to avoid foreclosure. Particularly, the new law requires banks to physically sit down and talk to borrowers before foreclosing. Without this new law, lenders often refuse to slow down the foreclosure process even if there was a possible way to avoid it. Keep in mind that foreclosure in Washington can occur within 6-7 months from a default (missed payment). Now, lenders will be required to slow down the process by a month or two and review alternative options.

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About Me

Hello, I'm an attorney in Washington state. My offices are in Seattle and Everett.
I practice consumer bankruptcy, creditors rights, legal issues involving foreclosure and short sales, other civil matters in both the federal and state level.

I also handle business transactional and immigration law, though my practice lately resolves around consumer bankruptcy due to our unfortunate economy.

Thank you for visiting! Feel free to contact me if you need any help or have any questions.